OFFICE OF THE CITY CONTROLLERHOUSTON FIRE DEPARTMENTLIFE SAFETY BUREAU PERFORMANCE AUDITChris B. Brown, City ControllerCourtney E. Smith, City AuditorReport No. 2017-10
OFFICE OF THE CITY CONTROLLERCITY OF HOUSTONTEXASCHRIS B. BROWNJune 14, 2017The Honorable Sylvester Turner, MayorCity of Houston, TexasSUBJECT:2017-10 Houston Fire Department (HFD)Life Safety Bureau Performance AuditMayor Turner:The Office of the City Controller’s Audit Division contracted the professional services of VanessaM. Johnson, CPA, LLC to complete a performance audit of the Houston Fire Department’s LifeSafety Bureau (LSB), which is under the oversight of the Fire Marshal’s Office. The majorcomponents of LSB operations include inspections, permitting, fire prevention education, codeenforcement, and code development. These operations are vital to ensure a safe and securecommunity for Houston’s citizens and visitors.The primary objectives of this audit were: Assess internal controls, structure, operational and management practices;Examine operational practices, resources, technology, and training practices;Assess the structure and management practices of LSB related to effective resourcedeployment; andProvide practical recommendations for improving coordination and processes, overallcost efficiency and effectiveness of LSB functions.Our engagement scope included operations and transactions occurring during Fiscal Year (FY)2015 and FY 2016.The audit noted the primary strengths of the LSB function as: LSB is staffed with certified fire inspectors who are knowledgeable of Fire Coderegulations and LSB Standards.LSB has certified instructors, referred to as District Training Officers, who educateinspectors on fire code developments.The attached report identifies twenty-eight (28) opportunities to improve the effectiveness andefficiency of LSB operations. The findings in the report relate to the following ten (10) categories:CATEGORIES OF FINDINGSCommunicationInformation TechnologyInternal ControlsOrganizational StructurePoliciesProgram DesignRecordkeepingReportingResourcesTraining901 BAGBY, 6 FLOOR P.O. BOX 1562 HOUSTON, TEXAS 77251-1562THi
OFFICE OF THE CITY CONTROLLERCITY OF HOUSTONTEXASCHRIS B. BROWNWe would like to express our appreciation to the management and staff of HFD for their time andeffort, responsiveness, and cooperation during the course of the audit.Respectfully submitted,f!J6- Chris B. BrownCity Controllerxc:Samuel Peria, Fire Chief, Houston Fire DepartmentCity Council MembersMarvalette Hunter, Chief of Staff, Mayor's OfficeKelly Dowe, Chief Business Officer, Mayor's OfficeHarry Hayes, Chief Operations Officer, Mayor's OfficeCynthia Vargas, Executive Assistant Chief, Houston Fire DepartmentJerry Ford, Fire Marshal, Houston Fire DepartmentShannon Nobles, Chief Deputy City Controller, Office of the City ControllerCourtney Smith, City Auditor, Office of the City Controller901BAGBY, 6'" FLOOR.P.O. Box 1562. HOUSTON, TEXAS 77251-1562ii
Houston Fire Dept.Life Safety BureauPerformance AuditReport Date: 6.8.17Performed byVanessa M. Johnson, CPA, LLC
HFD-Life Safety Bureau3 - 113BACKGROUNDAUDIT SCOPE & OBJECTIVESPROCEDURES PERFORMEDAUDIT METHODOLOGYRISK ASSESSMENT FRAMEWORKCONCLUSIONS & SIGNIFICANT ISSUESSUMMARY OF AUDIT FINDINGS (TABLE 1)ACKNOWLEDGEMENT & SIGNATURESDETAILED FINDINGS & RECOMMENDATIONSMANAGEMENT RESPONSES AND IMPLEMENTATION DATESACKNOWLEDGEMENT STATEMENT3-444-556-889-101112 - 64EXHIBIT IEXHIBIT II2
HFD-Life Safety BureauINTRODUCTIONThe City of Houston engaged Vanessa M. Johnson, CPA, LLC (VMJ CPA) to conduct an independentperformance audit of the Houston Fire Department Life Safety Bureau Division (LSB). We havecompleted the audit and noted primary strengths of the LSB function: LSB is staffed with certified fire inspectors who are knowledgeable of Fire Code regulations andLSB Standards. LSB has certified instructors, referred to as District Training Officers, who educate inspectors onfire code developments.BACKGROUNDThe Fire Marshal's Office is part of the Houston Fire Department’s (HFD) Prevention/Planning &Homeland Security Command. The Fire Marshal's Office oversees the Arson and Life Safety Bureaus,as well as certain permitting activities related to fire prevention permits. LSB is responsible forinspection, enforcement, permitting, and code development activities, which are the majorcomponents of LSB's operations.The Office of the City Controller engaged Mir, Fox, & Rodriguez, P.C. in 2005 to conduct aperformance audit of LSB. The audit, published in September 2005, resulted in severalrecommendations to improve internal controls and operational efficiency. Over the past several years,HFD management commissioned various firms to conduct studies of LSB's operations with the mostrecent being the Response Time and Staffing Analysis Model for HFD by FACETS Consulting in 2016.The FACETS study provided several recommendations to improve LSB's operational practices. Someof the FACETS study observations and recommendations mirror those provided by the Mir, Fox, &Rodriguez audit team in 2005.During the last few years, LSB has experienced the following structural changes: Chief Ford was appointed Fire Marshal, responsible for oversight of the Life Safety Bureau andPublic Education in March 2015. The Hotel/Motel specialized inspection team was created in October 2015. The Research & Development/Code Enforcement team was created approximately 2 years ago. The LSB vehicle management was restructured under the City's Fleet Management Department.3
HFD-Life Safety Bureau District 4 was added to the General Occupancy Inspection Team.AUDIT SCOPE & OBJECTIVESWe conducted the performance audit for the periods of FY2015 (July 2014- June 2015) and FY2016(July 2015-June 2016). Due to the unavailability of data and inspection records, the scope of our auditwas limited in some areas for the FY2015 audit period. The refined objectives of this engagement wereto review and test transactions and operational activities in conducting the performance audit to:1. Assess internal controls, structure, operational and management practices;2. Examine operational practices, resources, technology, and training practices;3. Assess the structure and management practices of LSB related to effective resource deployment,and4. Provide practical recommendations for improving coordination and processes, overall costefficiency, and effectiveness of LSB functions.Our audit and work product are intended for the benefit and use of the City of Houston only. The auditwas not planned or conducted in contemplation of reliance by any other party or with respect to anyspecific transaction and is not intended to benefit or influence any other party. Therefore, items ofpossible interest to a third party may not be specifically addressed or matters may exist that could beassessed differently by a third party.PROCEDURES PERFORMEDWe conducted our planning and fieldwork from January 2017-March 2017. The engagement teamperformed the following tasks in conducting this performance audit: Held an entrance conference on January 26, 2017 to confirm the engagement agreement, discussany concerns or issues of management, set expectations, clearly identify the lines ofcommunication, and establish a preliminary timetable to ensure a smooth audit process; Conducted interviews with key personnel throughout LSB; Conducted necessary research to identify best practices, industry standards, & laws andregulations related to fire prevention programs; Performed site visits and walkthroughs at various locations, including schools, warehouses,hospitals, nursing homes, hotels, etc. for observation of procedures discussed with key personnel;4
HFD-Life Safety Bureau Reviewed policies, procedures, and key documents, such as the Houston Fire Code, LSBStandards, applicable National Fire Protection Association (NFPA) Standards, City ordinances,Texas Commission on Fire Prevention regulations, LSB Guidelines, and other relevantinformation for training and fire prevention education; Evaluated applicable operational practices, technology tools, and internal controls; Performed a risk assessment to identify, assess, and prioritize risks to develop a risk-basedapproach for audit programs; Performed analytical procedures; Mapped risks and controls to key processes and performed a gap analysis of the end-to-endprocess flow of information and transactions; Developed sampling plans for testing, including the nature, timing, and extent (NTE); Performed tests of controls operating effectiveness; Examined pertinent documents and records, training documentation, inspection reports,checklists, photographs, reconciliations, financial records, and other supportive evidence; Tested compliance with established or stated policies and procedures; Tested compliance with applicable City ordinances, state, and national regulations, and Held an exit conference on April 25, 2017.AUDIT METHODOLOGYWe conducted this performance audit in accordance with Generally Accepted Governmental AuditingStandards and in conformance with the International Standards for the Professional Practice of InternalAuditing. Those standards require that we plan and perform the audit to obtain sufficient andappropriate evidence to provide a reasonable basis for our findings and conclusions based on our auditobjectives.The scope of our work did not constitute an evaluation of the overall internal control structure of LSB orHFD. Management is responsible for establishing and maintaining a system of internal controls toensure that City assets are safeguarded; financial activity is accurately reported and reliable; andmanagement and employees are in compliance with laws, regulations, and policies and procedures. Theobjective is to provide management with reasonable, but not absolute assurance that the controls are inplace and effective.5
HFD-Life Safety BureauRISK ASSESSMENT FRAMEWORKThe steps taken in performing the risk assessment of the performance audit satisfy the InternationalStandards for the Professional Practice of Internal Auditing and Generally Accepted GovernmentAuditing Standards (GAGAS). The risk assessment process was performed as part of our planning andapplication and development procedures. The risk assessment process consisted of: 1) Understandingthe LSB activities and operations, 2) Developing the Risk Profile, 3) Assessing and Prioritizing Risks,and 4) Developing the Risk- Based Audit Plan's specific programs.1. Understanding LSB's Activities and OperationsWe began the risk assessment process by gaining an understanding of LSB's internal controlenvironment, key business processes, activities, operations, roles and responsibilities, and interactionswith third parties by performing inquiries and interviews with key personnel. In addition, we inspectedrelevant documentation, reviewed applicable laws and regulations, examined IT systems, applications,and software, and performed site visits to observe operations, equipment and infrastructure, and othercritical aspects of LSB. We mapped key business processes and systems to the goals, objectives, and keyperformance indicators (KPIs) to develop the audit universe (Figure 1) for LSB that was used indeveloping the Risk Profile.FIGURE 16
HFD-Life Safety Bureau2. Developing the Risk ProfileOnce an understanding of LSB's key business processes was obtained and documented, we identifiedLSB's specific risks and combined those with the inherent risks that are pervasive within LSB. Utilizingthe identified audit universe, we identified the most significant risk categories, grouped identified risksinto those categories, and customized risk definitions for each risk category. VMJ CPA's Risk Registerand Risk Libraries were leveraged when developing the risk model for LSB.3. Assessing and Prioritizing RisksIn evaluating the impact and likelihood of the risks, both quantitative and qualitative factors wereconsidered. These risk factors (criteria) included the following: Complexity of operations Public interest Financial impact Human resources/Workforce Regulatory/compliance Time since last audit Public and firefighter/Emergency Response safety Control Environment Process/System Maturity and Degree of Change Reliance on external parties (this could include other City departments or third parties) Information Technology Budget ConstraintsThe risks were then assigned a ranking to assess impact and likelihood. For each process, we establisheda ranking of the vulnerability of LSB to the various risks within the process and the significance of theimpact the risk could have on LSB. An overall ranking of high, medium, or low was assessed for eachprocess. The risk assessment results were the primary driver in developing specific audit programs forthe audit areas identified.4. Developing the Risk-Based Audit Plan's Specific ProgramsOnce the risk assessment results were evaluated, we developed audit programs that focused onevaluating controls and key performance indicators, which mitigate key risks related to LSB's significant7
HFD-Life Safety Bureauoperational processes. The nature, timing, and extent of procedures performed as part of the auditprograms considered the results of the risk assessment.CONCLUSIONS & SIGNIFICANT ISSUESWe believe that we have obtained sufficient and appropriate evidence to adequately support theconclusions provided below as required by professional auditing standards. Each conclusion is alignedwith the related Audit Objective for consistency and reference. For detailed findings,recommendations, management responses, comments and assessment of responses, see the “DetailedFindings, Recommendations, Management Responses, and Assessment of Responses” section of thisreport.CONCLUSION 1 – (AUDIT OBJECTIVE #1)Based on audit procedures performed, there is a need to strengthen internal controls over qualityassurance and recordkeeping; re-evaluate the roles/responsibilities and organizational structure of LSB;and implement best practices for optimum operational and management performance. (See Findings#8, #9, #12, #14, #15, #16, #17, #20)CONCLUSION 2 – (AUDIT OBJECTIVE #2)Based on audit procedures performed, there is a need to develop a comprehensive professionaldevelopment program; acquire and utilize a comprehensive integrated inspection software anddatabase; ensure resources are made available to personnel to facilitate productivity; and best practicesare implemented for optimum operational performance. (See Findings #2, #10, #11, #21, #22, #23, #26,#27, and #28)CONCLUSION 3 – (AUDIT OBJECTIVE #3)Based on audit procedures performed, there is a need to develop a comprehensive risk-based approachto performing inspections so that inspector assignments can target higher risk areas. Moreover, thepermitting fee structure should be evaluated to ensure costs are fully recovered for providing fire-watch/standby services. (See Findings #1, #13, #18, #19, and #25)CONCLUSION 4 – (AUDIT OBJECTIVE #4)Based on audit procedures performed, overall, LSB has opportunities to improve communications andcoordination throughout LSB and other HFD divisions and City departments, as well as developstandard operating procedures and policies that promote operating efficiently and effectively to executeLSB's initiatives. (See Findings #3, #4, #5, #6, #7, and #24)8
HFD-Life Safety BureauWe identified in the audit report 28 opportunities to improve effectiveness and efficiency of LSBoperations. A summary of those opportunities are listed in Table 1 below:identified and corrective actions are appropriate.9
HFD-Life Safety Bureauidentified and corrective actions are appropriate.10
HFD-Life Safety BureauACKNOWLEDGEMENT & SIGNATURESThe Audit Team would like to thank LSB for their cooperation, time, and efforts throughout the courseof the engagement.Vanessa M. Johnson, MBA, CPA, CIAManaging Director11
HFD-Life Safety BureauPROGRAM DESIGNRisk Rating - HighFinding #1: No Comprehensive Risk-Based Approach to InspectionsBackground: There are nine (9) different inspection teams within LSB, each having its own approach toperforming inspections. Most teams assign inspection locations based on zip codes. Inspectors then,perform their daily inspections based on the last date the location was inspected, or whichever may beconsidered "easier" to inspect in order to meet inspection goals established by LSB's management.Other team inspections are considered permit driven, meaning inspections are trigged based on whenfire prevention permits are purchased.In mid-2015, the 360 Degree Inspection Program was implemented to assist inspectors in performingtargeted inspections based on a risk-based approach. According to LSB, this program required buildingmanagement of high-risk occupancies, such as schools, high-rises, apartments and institutions, toconduct a self-inspection of their facility (pre-inspection report), including all life safety systems, andthen forward the report to LSB. The inspectors were to review the report to assist them in being familiarwith the buildings' status regarding the maintenance of required fire protection systems. Thisinformation is useful in identifying locations that may need an immediate inspection. Requesting thebuilding information prior to conducting the inspection was to improve the efficiency of the fieldinspector.Finding: The 360 Degree Inspection Program lacks critical components for a comprehensive riskbased approach to ensure program success. In addition, the program initially operated ineffectively, asinspectors were performing analytical inspections on occupancies (hotels/motels, high-rises, andapartments) where general inspections should have been performed. Analytical inspections consistedof providing checklists to occupancy owners to self-inspect their facilities rather than field inspectorsperforming general inspections. General inspections consist of inspectors performing inspections ofthe entire building to ensure code compliance and safety standards are practiced on an ongoing basis.Recommendation: We recommend the 360 Degree Inspection Program be developed into acomprehensive risk-based inspection program to incorporate data from Fire Suppression reporting toassist in performing targeted inspections on higher risk locations. In addition, performing a risk12
assessment on all inspection teams to gather factors on the number of fire incidents for specificoccupancy types, repeat violations, insurance ratings on buildings, most populated areas within thecity, etc. will provide valuable information when assessing and prioritizing locations. Some specializedteams have characteristics that may warrant a different methodology to be utilized within the riskassessment, such as the Hazmat/High-Piled Storage Inspection Team.All approaches and methodologies to the inspection process should be documented and evaluated on aperiodic basis to assess risk assessment procedures that may be impacted by the growth, processchanges, or other relevant risk factors. This process will also facilitate consistency and efficiency withinthe teams.LSB's Management Response: Over the last 4 months, an LSB project team has been working with anexternal consulting firm, Alvarez & Marsal, to design, develop and implement a risk based inspectionprogram. Through this effort, the team has created a master commercial property list utilizing datafrom numerous internal and external data sources. A mechanism to assess risk was developed and arisk score was calculated for each address. Lastly a scheduling engine was developed that prioritizesand schedules all future inspections. This model is in the process of being rolled out in a limitedcapacity until the fully automated model can be implemented. The implementation of the fullyautomated model is scheduled to be completed by July 2017.Responsible Party: Fire MarshalEstimated Date of
AUDIT SCOPE & OBJECTIVES We conducted the performance audit for the periods of FY2015 (July 2014- June 2015) and FY2016 (July 2015-June 2016). Due to the unavailability of data and inspection records, the scope of our audit was limited in some areas for the FY2015 audit period. The refined objectives of this engagement were
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